Treasury, IRS Issue Regs on Deferred Compensation

The Treasury Department and the Internal Revenue Service issued final regulations on the treatment of nonqualified deferred compensation plans and arrangements under Section 409(a) of the tax code.

The regulations provide guidance regarding the requirements for deferral elections and payment timing under the section. Affected plans and arrangements are required to comply with documentation requirements established in the final regulations by Dec. 31, 2007.

In General, the final regulations implement the rules outlined in the proposed regulations published in September 2005, but also include changes suggested by public commentators. The regulations themselves were created in response to legislation enacted by Congress in 2004 to address concerns involving reported abuses of nonqualified deferred compensation plans.

Published along with the regulations was Notice 2007-34, which includes additional guidance regarding the application of Section 409 to split-dollar life insurance arrangements and provides that the amendments of arrangements to comply with section 409 will not be treated as a material modification of the arrangement.